‘Australia must be prepared’, Newman warns

Former ASX Ltd chairman
Maurice Newman
has warned that Australia has eight years to get its economy in order before the global withdrawal of government stimulus packages has potentially serious consequences. He also criticised the Treasurer’s blocking of the ASX takeover.

Speaking at an industry lunch in Sydney, Mr Newman said Australia, Canada, Brazil, Russia, India and China were in a good position, but that the United States, Japan and the United Kingdom faced substantial continuing issues. “Three years after the global financial crisis, the world is still on life support and the recovery at best looks feeble," he said.

“It would be nice to pretend we can get through this unscathed but there is a $US1.65 trillion budget deficit and $US144 trillion in unfunded liabilities. The US dollar could cease to be the reserve currency – we are talking serious dislocations, and I want Australia to be prepared for such an event."

Mr Newman said Australian companies needed to continue deleveraging their balance sheets and the economy needed to return to a structural fiscal balance as opposed to merely a cash surplus.

“We need to look at where we are spending and what can be avoided," he said.

The structural budget balance excludes factors such as resource booms and is regarded as the best measure of the budget’s underlying strength.

While the headline budget balance is forecast to return to surplus in 2012-13, Treasury estimates the budget will be in structural deficit until 2019-20.

Separately, Mr Newman was scathing of Treasurer Wayne Swan’s blocking of Singapore Exchange’s takeover of ASX against a background of global consolidation.

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“The message that will go out around the world for other exchanges is that this [Australia] is a no go," he said, suggesting xenophobic issues contributed to the decision. “Australia will remain a market in this part of the world without the ability to trade in securities elsewhere," he said. “When I was chair [of ASX] we tried to establish a presence in Asia and without the SGX it was almost impossible."

Also on the panel,
QBE
Insurance chairman
Belinda Hutchinson
was more upbeat on the world economic outlook, citing growth forecasts of 4.5 per cent for 2011-12 from the IMF.

But she noted, “the fiscal deficits and balance sheets of the US, Japan and UK will come home to roost and they will have to take action or they will go bankrupt. Hopefully there will be a smooth transition, but it’s very difficult with minority governments."

Ms Hutchinson joined a growing chorus of executives challenging the Gillard government over its carbon tax policy.

“My concern is the impact on the economy and employment. We are seeing the steel, cement and food industries all coming out [to discuss] these impacts," she said.

The government’s climate change adviser
Ross Garnaut
has suggested half the revenue raised from a carbon tax would go to households through tax cuts, but Ms Hutchinson questioned the logic of this approach.

“I don’t understand why we want to be seen as altruistic because the rest of the world is not following suit," she said.

“What Australia does as a small economy will have zero impact [globally] as a result of the tax." Instead, Ms Hutchinson urged waiting until trading partners adopted a scheme such as a carbon trading price.

While all insurers face higher claims from the increased frequency and severity of natural perils, the QBE chairman questioned the role of climate change.

“We don’t see climate change as having a significant impact," she said, classing the recent spate of natural disasters as part of Australia’s history of floods and fires.

“Research we’ve received indicates it’s nothing to do with climate change."

Mr Newman said a standard definition for flooding was likely to drive up insurance premiums and warned of moral hazard from government intervention.

“If we get bailouts from charity or government for natural disasters people will say, why insure?"